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Pensions Bill

Volume 702: debated on Monday 23 June 2008

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved accordingly, and, on Question, Motion agreed to.

House in Committee accordingly.

[The LORD SPEAKER in the Chair.]

Clause 13 [Review of qualifying earnings band]:

43A: Clause 13, page 7, line 7, at beginning insert “In addition to fulfilling the duties under section 5 of the Pensions Act 2007 (c. 22),”

The noble Lord said: This is a paving amendment, and quite deliberately so. Restoring the broken link between national average earnings and the basic state pension is at the heart of the Bill and must be the bedrock of any national consensus on pensions after the Turner report. It is so easy to get lost in the trees of detail on the Bill, but the basic state pension really is the wood.

Amendment No. 43A is a paving amendment for the substantive one, Amendment No. 136, which ensures that the earnings-link section from last year’s Pensions Act comes into force no later than 1 April 2012. That section requires the Secretary of State to review the basic state pension, the standard minimum guarantee in state pension credit, and widow’s pension and widower’s pension in industrial death benefit to determine whether they have kept their value in relation to the general level of earnings; and, when he considers that the level of earnings has increased during the review period, to lay a draft of an uprating order before Parliament increasing the amounts by a percentage that is not less than the relevant increase in earnings over the review period.

The basic state pension has fallen in value so far over the past 30 years that pensioners have been forced into a means-test maze that destroys incentives to save for old age. We all agree that we must stop that rot. The Government want to bring in personal accounts and automatic enrolment for millions of pension savers in April 2012, but refuse to make a commitment to keep their side of the pension bargain. They say that the earnings link will be restored between April 2012 and April 2015,

“subject to affordability and the fiscal position”.

If you are one of the 1.25 million pensioners in the UK living officially in severe poverty, the 2.25 million pensioners in poverty or the 1.5 million pensioners in fuel poverty, you cannot say that you will pay your gas bill or buy your next half a dozen eggs or pint of milk,

“subject to affordability and the fiscal position”.

You need the money to survive now. The Government must stop hiding behind weasel words to wriggle out of making a firm commitment even to bring back the link in four years’ time.

Of course, that is in the far from certain event that this Government will then be in power, so the attitude of the Conservatives to the amendment is of more than academic interest. In the Commons, and again in this place, they have tabled an amendment asking the Government effectively to say where they stand. That is fine so far as it goes and we will support it, but is it not the height of hypocrisy for a party that seeks to be taken seriously as the next Government to challenge this Government on when they will restore the earnings link without answering the same question themselves? Even if their Front Bench feels unable to support our simple amendment, I hope that Conservative Back-Bench Peers—I do not see many of them at the moment—and Peers from all round the Committee will feel able to join us, as they did last year on the amendments tabled by the noble Baroness, Lady Hollis, to give pensions justice to women.

It is no surprise that Help the Aged, in its excellent Spotlight report on pensioner poverty, points out that lack of money bars a large minority of the population from enjoying many of life’s pleasures. Nearly one in seven pensioners in the UK has not had a meal out for more than one year; about one-third of pensioners have not had a holiday in the past five years; and more than half believe that an extra £5 a week could make a real difference to their lives. Pensioner poverty is getting worse. Means-tested benefits are not getting through to about two in five pensioners who are entitled to them. It is high time for us to set a firm date to protect the basic state pension. I beg to move.

I am not one to resist a challenge, especially from the noble Lord, Lord Oakeshott. My first reaction to this amendment is that it is starred; in other words, it was put down at the last moment before the Marshalled List was assembled. Although I have a complaint on the amendment, it is not for that reason. I can hardly object to starred amendments when my noble friend Lady Noakes and I have put down some ourselves, which we hope will be debated today. We will see how the day pans out with the Statements and anything else that may occur. I note too that the Minister has littered today’s Marshalled List with amendments over and above those on the first Marshalled List, although, admittedly, none of those appeared to be starred when I glanced through them this morning.

My complaint is that this is a totally unnecessary paving amendment for Amendment No. 136. The noble Lord, Lord Oakeshott, might have said, although I do not think that he did, that the reason for this amendment is that Amendment No. 136 will come so late in the Bill that he would not be able to divide on it successfully at what may well be late at night. I do not know whether he intends to go to a vote now, although as a former Whip I am more than suspicious. The Government have said that they fully intend personal accounts to come into operation in 2012, which I assume means at the beginning of the financial year 2012-13. I should be grateful if the noble Lord could confirm that this is a correct interpretation of events to come.

This Committee can be in no doubt that two things are inextricably entwined with personal accounts. The first is the freezing of the second state pension; the second is to uprate the state basic pension by earnings rather than the RPI. Last year, in our debates, the Minister said that the latter would be done during the next Parliament. But the noble Lord, Lord Oakeshott, is right. No date was set and, although he and I tried to firm this up, we failed for the very good reason that no one could know when in the next Parliament such a commitment would be affordable. I was eventually, and am now firmly, persuaded of this.

Since last July when the 2007 Bill arrived on the statute book, the nation’s finances have gone from bad to worse. Not only have the Government had to bail out Northern Rock, we have also seen the fiasco of them seeking to remove the 10 per cent income tax band. They have had to increase the upper earnings limit of national insurance and have brought forward the freezing of the second state pension, which, I might remind the Committee, was supposed to help pay for the uprating of the basic state pension by earnings.

Not only that, but in order to do anything extra—equipment for our troops in Afghanistan, more money for local authorities and housing associations’ social housing schemes or the National Health Service—the Government’s only recourse seems to be to borrow yet more money. Why do Labour Governments—there have been two while I have been in your Lordships' House—always finish their term in government with huge borrowings, which then take many years for a Conservative Government to get down again to a realistic level? That is exactly the case today, but we must wait for perhaps as long as two years for a general election before we can start to repair the damage that has been done to the British economy. I defy the Minister to repeat the words of the late Lord Callaghan, “Crisis, what crisis?”.

Having got that off my chest, it is a fact that no one in any party or none—even the noble Lord, Lord Oakeshott—knows when it will be possible to afford to uprate the basic state pension by earnings. Somehow, though, by hook or by crook, there is a commitment by this Government, in the rather unlikely event that they are still in power, to do it by the end of the next Parliament. I have to say to the noble Lord, Lord Oakeshott, that to put a date on it that may possibly be even in this Parliament is just not on.

The noble Lord challenged me to give a commitment on behalf of my party that we would uprate by earnings. I have to remind him that in the last Conservative manifesto we did indeed give that commitment. I cannot say exactly when that will be—that is the whole point of my complaint about the noble Lord’s amendment—for the simple reason that it will be some time before we are allowed by the conventions to look at the full Treasury figures. At that point we will be able to make a decision and I am sure it will be announced then.

For all these reasons, I cannot support this paving amendment or Amendment No. 136.

As my noble friend the Minister will be aware, I have long supported the idea that the basic state pension should be increased via the wages index. I and a number of other colleagues raised the issue at Second Reading. We received a fairly firm assurance from our Front Bench that the Government were committed to paying the increase via the wages index with effect from 2012. I would have liked it paid immediately but nevertheless we did have an assurance from the Front Bench and I was prepared to accept that in the prevailing circumstances and I am prepared to accept it again. I want the wages index to be used as soon as possible. We did have that assurance, however, and I am prepared to accept that.

No one doubts the Government’s intention to restore the link with earnings. Indeed it is enshrined in statute already, as my noble friend has said. However, a legitimate question for Parliament and the public to ask is “When has a Government promise been fulfilled?” Is it when the promise is enshrined in statute? Is it when the relevant section of an Act has been triggered by the publication of a statutory instrument bringing the promise into operation? Or is it when the Government have announced a firm starting date? In the other place the Minister said that the Government’s objective was,

“subject to affordability and the fiscal position”,

to restore the link in 2012 or by the end of the next Parliament at the latest. However, this still leaves pensioners, current and future, in the dark. I urge the Government to take this opportunity to put the matter unequivocally beyond doubt.

I should like to support my noble friend Lord Oakeshott. Amendment No. 136 and the paving amendment that stands with it in this group relate to one of the most important aspects of the Bill—the long-term incomes of pensioners. More than any other group in the country, pensioners are affected by uprating policy because they are exposed to it for longer. I have often felt that the ramifications of upratings policies across the benefits field are not given the degree of care and attention that they should be given by the House of Commons and by your Lordships’ House. From year to year, although the changes may be apparently slight in terms of the figures of the annual increases, over periods of time they have profound effects on policy. The most important thing Mrs Thatcher’s Conservative Government did in relation to benefits was to de-link the pensions uprating from earnings in 1981. By a margin, it was the most important thing done by that Government.

I want to clothe my noble friend’s robust and sound arguments with one or two examples of what can happen over a spread of years. For example, if the 25 pence age addition that 330,000 pensioners who reach the age of 80 each year are blessed with—the 25 pence that was first introduced in 1971—had been uprated in terms of earnings since 1971 it would now be worth nearly £5 per week. As my noble friend rightly pointed out, the evidence is that £5 a week would be worth having if you were 80 and reliant on benefits; in that case, people would welcome such a pension addition.

Let me give two other figures at random to illustrate how big an impact this would have. Between 1997, when the Labour Government first came into office, and 2008—roughly 10 years—the retail prices index went up by 37 per cent. Over that same period, the pension level went up by 45 per cent, but the increase in average earnings was 54 per cent. Translated into a single pension, that is £5.60 per week—again, an increase of £5 per week had uprating been linked to earnings during that period. That is £290 per year. The Prime Minister would need to go about the United Kingdom making special one-off payments of £200 a year for fuel and £200 for health checks for young people if there were consistent benefit policies that uprated the benefits available to people in relation to the increase in earnings and not, as happens currently, to the RPI.

Let us look at the broader sweep. If the basic pension had kept pace with average earnings since 1980, it would have amounted to £137 per week for a single pensioner. That is nearly at pensioner credit levels. We could deal with all the means-testing difficulties that we have rehearsed over many debates. That sum is calculated in a recent publication by the Joseph Rowntree Foundation called The Impact of Benefit and Tax Uprating on Incomes and Poverty, which I commend to the department and the Minister as making instructive reading.

For the reasons I have outlined, the uprating policy can, over a period, have a dramatic impact on pensioner poverty and across the whole benefits structure. The noble Lord, Lord Skelmersdale, is right to be careful about the cost of such a change; it would not be cheap and would involve making a principled decision about whether to allow pensioners to share in the increasing prosperity of the nation. The Rowntree Foundation report makes the very positive suggestion that we should be looking at some of the increases that fiscal drag brings into the Treasury over these periods; where the tax thresholds are not indexed to the same extent and more people are brought into taxation, the Exchequer benefits. The report makes some compelling calculations which demonstrate that there is some comfort for the noble Lord, Lord Skelmersdale, and others who rightly think that this has to be paid for and that the money cannot just be conjured out of thin air.

This is one of the most important amendments to the Bill and one of the most important debates. I encourage my noble friend to seek what comfort he can from all sides of the Committee, but I would press the amendment to a Division at some stage in our proceedings; it is a core issue which needs to be decided. People need to be asked on which side of the divide they stand. I do not think it is fair to do anything other than attach the uprating to average earnings in April 2012—nothing less will do.

Earnings uprating was a key issue of discussion on the last Bill and is essential to the reforms to state pensions made in the Pensions Act 2007. The reforms already made, to which earnings uprating of the basic state pension is fundamental—we agree on that—will provide a more solid foundation on which to make private pension saving. I am not surprised, therefore, that this subject remains an area of interest in this Bill.

The two amendments under discussion relate to earnings uprating and the annual review of the qualifying earnings band. Amendment No. 43A would tie the annual review of the qualifying earnings band set out in Clause 13 with the annual review of the basic state pension and other amounts once earnings uprating is introduced. Amendment No. 136 would ensure that earnings uprating of the basic state pension happened no later than April 2012, as we have heard.

The amendments provide me with a further opportunity to set out the Government’s commitment on earnings uprating and how that will be carried out. My honourable friend the Minister of State for Pension Reform said in the other place:

“Let me put beyond doubt our commitment to reinstate the link. That is not just my guarantee; there is a legal obligation, and we will stick to it”.—[Official Report, Commons, 22/4/08; col. 1252.]

We have legislated to restore the earnings link to the basic state pension in the Pensions Act 2007. In fact, Section 5 was brought into force by Section 33 of that Act. During the next Parliament, we will link the uprating of the basic state pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do that in 2012, but in any event by the end of the next Parliament at the latest. Let me make it clear: our aim is to restore the link in 2012. That timing strikes a balance between making reforms that are affordable in the long term and tackling the problems identified by the Pensions Commission. The commission’s view is that a short delay in introduction, from 2010 or 2011 as originally suggested, would not unduly affect outcomes or undermine the overall thrust of our reforms.

The current arrangements allow for some flexibility on timing. If, for example, economic conditions prove uncertain, we have some flexibility to consider timing and affordability in light of the circumstances. That is nothing more than a sensible safeguard. Understandably, noble Lords, like many others, are keen to find out the timing of the earnings link as soon as possible. To that end, we will make an announcement, as we have said before, on the precise date at the beginning of the next Parliament.

On the process for earnings uprating, Section 5 of the Pensions Act 2007 sets out the arrangements to be followed in determining whether pension amounts have retained their value in relation to the general level of earnings. That requirement and the subsequent arrangements for uprating these amounts will be carried out as part of the annual process for uprating pensions and benefits. Those arrangements were debated in depth during our consideration of the previous Bill.

The amendments are not needed to strengthen the commitment on earnings uprating or the arrangements in place to carry it out. We have been clear in setting out our commitment on earnings uprating as part of a complementary package of reforms that follow the thrust of the Pensions Commission’s proposals to develop a solution for the future. Earnings uprating of the basic state pension will happen by the end of the next Parliament at the latest. However, our objective remains for the link to start in 2012 and we continue to plan on that basis.

The noble Lords, Lord Oakeshott and Lord Kirkwood, suggested that we have not done anything to support pensioners since 1997, but our strategy since 1997 has been to target help on the poorest pensioners while providing a solid foundation of support for all. In fact, we are spending around £12 billion more on pensioners in 2008-09 than we would have been had the 1997 policy continued. Around half of that extra spending is going to the poorest third of pensioners. Today, no single pensioner has to get by on less than £124 a week, compared with just £69 in 1997, which is a rise of over a third in real terms. Pension credit has been upgraded in line with earnings since it was introduced in October 2003. In April 2008, it increased by more than earnings. Since 1996-97 all pensioners have seen similar rates of income growth. Net pension incomes have increased by 29 per cent since 1997 and all pensioners have seen similar rates of income growth. That is in contrast to 1996-97, when the incomes of the richest pensioners grew much faster than the incomes of the poorest. We have put in resources, particularly in seeking to protect the poorest pensioners.

The noble Lord, Lord Skelmersdale, asked about the introduction of personal accounts in 2012. We debated that point last week. I confirmed that 2012 is still the year in which we are planning for their introduction. We have not given a precise date within that year, as there is clearly a great deal of work to be done. As we discussed, Tim Jones did an update on the timing and his report was put in the Libraries of both Houses.

The noble Lord said that we had brought forward the flat rating of S2P. We have not. The changes that we are making via the National Insurance Contributions Bill are to make sure that the flat rating of S2P keeps on track to where it was designed to finish and to take place when the pensions proposals were put together. The noble Lord berated this Government for their borrowing, but I believe that this Government’s economic record bears strong comparison with that of their predecessor. My noble friend Lady Turner gave her support to linking the basic state pension with earnings as quickly as possible. I acknowledge that she has been a long-standing campaigner on this issue.

We could debate endlessly the challenge that the economy faces and the Government’s record, of which I am proud. However, we do not need the amendments because we have already set down clearly in legislation our determination to relink the basic state pension with earnings. The amendments are unnecessary and I ask noble Lords not to press them.

I thank all Members of the Committee who have spoken in this short but crucial debate. I accept that legislation has been passed to restore the earnings link, but how do we ensure that that happens and when? The Minister says that we may have to wait seven years, but that is far too long. Millions of pensioners do not have flexibility on that because they will not still be alive when that day comes.

The noble Lord should know better. It is not fair to say that my noble friend Lord Kirkwood and I were saying that the Government have done nothing for pensioner poverty. We accept that they have done a great deal. We were pointing out that, despite all the money that has been spent, many pensioners are still falling through the means-test net and many are still in poverty. That was the substantive point that we were trying to make. As long as the basic state pension continues not to be linked to earnings, that situation will grow worse. As we all know, pensioner poverty on the Government’s official figures grew worse last year, so the policy is not working.

In response to the points made by the noble Lord, Lord Skelmersdale, I say that we have moved this paving amendment today because we do not want an issue of this importance to be considered late at night with few Peers here. We want to have the debate now. On the question of commitments, when George Osborne became shadow Chancellor, the first tax pledge that he made was to abolish stamp duty on share dealing in the City. Pensioners will notice that the Conservatives have the money to pledge a £4 billion a year handout on share dealing but are not prepared to pledge a penny to give a firm date for restoring the earnings link.

I thank my noble friend Lord Kirkwood for his encouragement to test the Committee’s opinion, which I had every intention of doing. I should like to do so now.

[*See col. 1264]

I beg to move that the House be now resumed.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.